US’s Second Largest Radio Broadcaster in Trouble?

An explainer on Audacy, how they got to this situation, and what’s next for them.

The US’s second-largest radio broadcaster was rebranded as Audacy in 2021. This company was formed when CBS Radio and Entercom Communications merged (became one company) in 2017. During this merger, Entercom Communications took out a loan of billions of dollars (I can’t figure out the exact number, but around 2 billion) to pay for this transaction.

I’m sure you can imagine that the interest payments on such a loan must be huge! Assuming 2 billion dollars in loans and a 5% interest rate, that’s 100 million dollars that need to be paid as interest every year. 100 million dollars.

Audacy makes most of its money from ad sponsorships, and if everything had gone according to plan, paying this interest with those ad sponsorships wouldn’t have been such a problem. Unfortunately, everything didn’t go according to plan.

Here are two things that happened in recent years that may have hurt Audacy:

First, the pandemic hit. Being locked inside their homes meant nobody was driving their car; by extension, folks who usually listened to the radio while driving reduced their radio consumption.

Second, podcasts have been on the rise. Many folks now prefer to go to Spotify and Apple Podcasts to listen to their favorite audio content. This was another hit to the radio.

So, what’s happening now?

Audacy is struggling to make interest payments and has recently been unable to make an interest payment (this is very bad, reputation-wise, for such a large company). Audacy is now in talks with some of its lenders (those who gave the loans) to slash the company’s loan from $1.9B to $350M. In return, its lenders will probably gain some ownership in the company (for those who understand, get equity).

Here’s a series of questions that may occur to you - why would any lender want to slash down the loan amount? Isn’t that just a loss for the lenders? Shouldn’t they stand firm and push Audacy to pay up? What’s the point of getting any ownership in a company that may be failing anyway?

Here’s the deal - it’s better for the lenders to end up with something versus nothing. There are hundreds of millions of dollars at stake! Suppose lenders refuse to try and find a workaround with Audacy and stay firm on their ask for $2B instead. In that case, the likelihood of Audacy failing will increase significantly, which means these lenders may get much less than if they were to cooperate with Audacy! If Audacy somehow makes a comeback, these lenders can sell their ownership in the company and make some more cash.

Let’s see what happens next!

Notes:

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